Monday, May 10, 2010

Bad Credit Refinance - Is it Possible?

With the current state of the economy, many people wonder about bad credit refinance - is it possible? Is it even desirable? Here to help sort out fact from fiction are a few tips on the pros and cons about bad credit refinance.

Tips on Bad Credit Refinance

Fiction: It's impossible to refinance today because banks aren't lending.
Fact: Bad credit refinance is still possible even in a difficult economy. Just keep in mind, without good credit you may not qualify for the best rates. However, that doesn't mean you won't save money. Many people with bad credit still save money or reduce their monthly bills by refinancing.

Fiction: Refinancing always makes sense.
Fact: Not everyone benefits from refinancing; in fact, for some people it can cost much more to refinance rather than pay down the terms of the original loan. Always calculate the full cost of refinancing, including closing costs and fees, and not just the monthly savings.

Fiction: Bad credit refinance ends up costing more in closing costs and other fees than it is worth.
Fact: Shop around for the best terms and rates to find a loan that fits your needs. Many people find they are able to recoup the cost of refinancing the loan within 1-3 years or even less.

Fiction: Bad credit refinance isn't a good idea because the government might not be willing to help once funds become available.
Fact: Following the mortgage crisis of 2009, the government made special funding available. As of 2010, only a few hundred people have taken advantage of the HOPE loans and other government sponsored initiatives. Currently there isn't any way of knowing what qualifications and criteria will be necessary in order to obtain assistance at a later date; on the other hand, locking in a solid fixed interest rate today assures your financial obligation is stable no matter what takes place in the future.

Fiction: I will be required to pay a lot of money out of pocket in order to refinance my home.
Fact: It is often possible to refinance with little to no money out of pocket. Closing costs and other expenses are easily rolled into most loan packages making it as affordable as it is easy to start saving money almost immediately. Just keep in mind, while it is simple to roll expenses into the closing cost it isn't always desirable since you will be effectively financing them for the entire term of the loan. If you are able to pay for closing costs and other fees out of pocket it is often preferable to do so when doing a bad credit refinance.

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Refinance Home Loan FAQ's

It is important to know exactly what to expect when applying to refinance home loan or mortgage loans. Here are some FAQ's or frequently asked questions and concern about how to refinance home loan or mortgage loans.

Refinance Home Loan FAQ

Q. What are the benefits when you refinance your home loan?
A. Refinancing allows many homeowners to lower monthly mortgage payments by reducing their interest rate, extending the loan repayment period or a combination of both. It also allows you to lock in a steady mortgage rate that won't go up or down over time if you select a "fixed" interest rate.

Q. Can I obtain additional funds when I refinance my home loan?
A. Yes, if you have extra equity built up in your home it is often possible to obtain a "cash-out refi" that provides cash at closing. The additional cash can be used to pay off high interest credit cards or car loans, put a child through college, remodel your home, take a vacation or almost anything else you desire. A cash out refinance is not available to everyone; in general you will need a substantial amount of equity in your home and above average credit in order to qualify. In some cases you may also need to begin paying PMI if you take too much equity out of your home, so explore your options carefully.

Q. Do I need equity in my home to refinance it?
A. It is possible to refinance a home loan with little to no equity but not all lenders write this type of loan. Much depends upon your individual situation, credit score and the value of the home.

Q. Do I need a new appraisal and survey if I want to refinance my home loan?
A. Yes, in most situations the lender will require a new and up-to-date appraisal and survey on the property prior to writing a new loan. If your existing survey is recent and no improvements have been performed on the property it might be possible to use an existing survey but it depends upon the lender.

Q. Is it better to modify my existing loan or apply for a mortgage refinance?
A. It depends. While some people may benefit from modifying an existing mortgage, most lenders usually extend the repayment period while adding interest without adding additional fees or closing costs associated with mortgage refinance. On the other hand, if you refinance your mortgage, you may be able to get reduced interest rates. Use an online mortgage calculator to compare the costs of each type of refinance home loan procedure.

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The Home Affordable Modification Program, Bank of America & Your Home

Fortunately, the federal government has initiated several programs and a lot of incentives for homeowners. The Home Affordable Modification Plan (HAMP), for example, is something that will allow you to qualify for a lower monthly payment through loan modification.
All you need to do is determine if you qualify for HAMP, submit an application with a loan servicer, ensure that your debt-to-income ration is at least 31% and undergo the income verification process and trial period.
Things to Remember when Applying for HAMP through Bank of America
Since the option to modify your loan through the HAMP program was introduced as part of President Barack Obama's stimulus plan, a lot of homeowners lined up to take advantage of it. The problem is that if you are applying for the program through financial institutions like the Bank of America, there are a lot of instances when the application gets denied.
What if you're already facing a foreclosure and your HAMP application through the Bank of America got denied? This is a scenario which is less-than-desirable - so in order to counteract the frustrations that you might feel during the process, here are a few things that you need to keep in mind:
1. Exercise a lot of patience during the application process.
Did you know that there are a lot of homeowners who applied for the HAMP loan modification program for two to more than five times? At one point or another, their reapplication got approved - although if you're the impatient type, you may not reach this point as a result of being frustrated.
What's important is to make sure that you are aware that it is possible to turn no into a yes - as long as you put your financial records in order to increase your chances of having HAMP approved the second, third, fourth or even fifth time around.
In relation to this, it would also help if you will treat the loan services with friendliness and patience - having the right attitude simply makes going through the process feel a lot better.
2. Make sure that all the necessary paperworks are in order.
One of the most common reasons why HAMP applications get denied in the first place is that applicants do not submit all the necessary paperwork. To increase your chances of getting approved, make sure to submit all the requirements needed for the income verification process.
3. Escalate your request from one level to another if you need to.
Again, as a result of the President Obama's stimulus plan, financial institutions like the Bank of America got flooded with HAMP requests. So it is no wonder why a lot of applications end up getting denied. If this happens to you and you know that you qualify for the loan, don't hesitate to escalate your request from one level to another. Make follow-up calls and learn about the loan application process inside out.
Information is definitely the key if you are facing a prospect as serious as a foreclosure. The good news is that with programs like HAMP, you can take advantage of the federal government-initiated programs that will make paying for your home loan a lot easier on your household budget - so that you can save money and keep your house at the same time.

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Home Refinance Advice

When it comes to a home refinance, things aren't always as easy as they may initially appear; learn how to protect yourself and get a great rate with this easy to use home refinance advice

Home Refinance Advice

  1. Work with a solid lender. With the recent banking crisis it can be difficult to know which company is solid and which isn't. Take time to verify the credentials of the refinance lender and follow-up by making copies of all paperwork, communication and other transactions. In the event of a problem, you will have the information required to prove your position.
  2. Don't fall for scams. Always verify the credentials of any home refinance provider prior to relating sensitive information including social security number, banking or credit scores. It's a good idea to check with the Better Business Bureau or other consumer regulatory agency in your state to confirm the agency is in good standing and eligible to write loans. Never do business with a company that requires large up-front fees to gain information or anyone that makes promises that sound too good to be true. Know what typical closing costs and other refinance fees will be before you sign.
  3. Speak to a credit counselor. If you are interested in home refinance as a way to reduce monthly debt, it may be advisable to speak with a credit counselor first. Sometimes it is possible to restructure or modify current loans or debts to make them more affordable without having to refinance. Depending upon your specific situation, loan modifications, extended payment plans or other payment options may be less costly in the long run and provide the same relief for a fraction of the cost. Remember, the time to act is before you are in serious financial trouble. Plan ahead in order to keep all your options open and then make the best decision for your situation.
  4. Get it in writing. Refinancing is a complex transaction where time is of the essence; everything from rate locks to points paid are subject to change so always be sure to get everything in writing. Never rely upon verbal approval only. In the event of a problem you will not have sufficient proof to substantiate your position.
  5. Make copies of everything. You have probably heard the saying to err is human. Well, it certainly holds true when dealing with any type of paperwork. During the course of a mortgage or home refinance you will be required to submit many types of forms and documentation. Take a few extra minutes to make a copy of everything just in case it is needed later. Not only is it a great way to stay organized but it may help prevent the late submission of paperwork required to get the best rate.

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What Are Some Average Closing Costs?

When you are considering buying a home, you may wonder what are the average closing costs to get that home. Many want an idea of how much to save for these costs. It would be a shame to have the down payment saved for and then find out you need more money saved for the closing. This article will talk about what are some of those average closing costs.
First let us discuss there are two types of closing costs. You have non-recurring fees which are your one-time fees associated with closing your mortgage and those recurring costs that are also called prepaids. Many times non-recurring fees can be negotiated. Whereas the prepaids usually are not negotiable.
Remember you can only get an idea of the costs for these fees. From place to place they can be different. So do not look at these prices as set in stone. They are just to give you a picture of what to expect. You should find these listed on your Good Faith Estimate.
Below are a list of some of those non-recurring one-time fees for home closing costs:
  • Application Fee - This is a fee that the lender requires to get your application started. This fee can include your credit report. They can range from $100 to $400. This fee is negotiable.
  • Origination Fee - This fee is for the work of preparing your loan and is sometimes referred to as "points". Your loan officer is usually paid from this fee. You can expect a range of 1% to 5% (or 1 to 5 points) of the loan amount for this fee. Definitely negotiate this fee.
  • Mortgage Discount Points - The name for this fee can be confusing. When you hear the word discount you think you are getting a bargain or something being lowered for you. These fees are paid to buy you a lower interest rate. So it is money you put up front to lower your rate. In a since it is a bargain when you consider you will pay less interest for your loan. Where it is confusing is you put money up front to get this bargain. Mortgage discount points can range from.5% to 2% of the loan amount. Be sure to negotiate this fee.
Now consider those average closing costs that are recurring costs, referred to as prepaids:
  • Property Taxes - Depending on when you close your loan and when the seller paid his property taxes, you may have to give the seller back some money. How does this work? Keep in mind taxes are paid in advance. So if the sellers taxes were due February 28th and that paid him until July 31st, but you closed on the home May 30th. You would then owe from May 30th to July 31st to the seller. But that may not be all, the lender may collect from you the taxes due for the remainder of the year, that is from July 31st to December 31st at the closing. See why these are called prepaids! These costs cannot be negotiated. Although some sellers are willing to help in this area to help with closing the loan.
  • Homeowners Insurance - This is insurance to cover any loss or damage to your home. Your lender will want this paid for at the closing. These policies can range from $300 to $1,000 depending on where you will live. Shop this fee to be sure you have the best price. Do this shopping before closing.
All of these loan closing costs are itemized on your Good Faith Estimate (GFE). By law this GFE is to be presented to you by the lender within three days after your application is accepted. Be sure to read this carefully and ask questions if you are uncertain what the fee is for.
Keep in mind your final GFE may the higher than the original one presented to you. This is because some of those final closing costs may be different. So do not be alarmed. Some fees were estimated to give you an idea of the cost. Then the actual bill for that fee may be more. Thus the GFE will reflect that. Still you will want to watch out for those unnecessary closing costs.
These are just some of the average closing costs you will find to close on your home mortgage. Do your homework ahead of time so that those fees that can be negotiated - are negotiated. Endeavor to not pay any more fees than you have to close on your home.

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Mortgage Refinancing in Today's Economy

Many people are under the impression it is all but impossible to refinance in today's economy. While it is more difficult in some situations, mortgage refinancing is more than just possible - it remains a viable financial planning tool for millions of households. Here is what you need to keep in mind when trying to refinance your mortgage in today's economy:

  1. Better Credit. Tighter lending standards are beginning to take a toll so expect to encounter more stringent criteria in order to obtain the best interest rates. However, with interest rates at historic lows, it is still possible to reduce your monthly obligations with mortgage refinancing even without qualifying for "prime" rates.
  2. Keep the Paperwork. Not only are banks cracking down on lending standards and requiring better personal documentation in order to obtain a loan, but be prepared to provide documentation for all improvements and upgrades performed on the property.
  3. Know your Neighbor's Value. You may not be your brother's keeper but for better or worse, your neighbor's property values are likely to impact yours. Because banks and other lenders rely heavily upon comparable values for mortgage refinancing, anything that helps or hurts your local neighborhood or community is likely to help or hurt your property value as well.
  4. Shop Small. In prior years it was often easier to do business with a big nationwide bank but today all that has changed. With the recent crisis in the financial industry, many small banks and local credit unions are actually easier to deal with for mortgages and mortgage refinancing than their larger counterparts. It still makes sense to comparison shop for a refinance lender before making a final decision since rates and terms may vary.
  5. Keep an Eye on the Bank. By now it should come as no surprise that banks are in big trouble; fortunately, it doesn't include every bank but it pays to keep an eye on the fiscal health of your banking institution just to make sure your mortgage refinancing doesn't fall through at the last minute. In fact, many homeowners and buyers alike are taking the added precautions of submitting a back-up application when buying or refinancing a loan just to assure they are able to lock-in rates and have access to credit should their existing bank falter. If you aren't convinced about the stability of your banking organization it is often a good idea to verify the fiscal health and stability by visiting the FDIC at They provide a list of bad banks at risk for bankruptcy just for the asking

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Cut Costs With Home Refinancing

Home refinancing often makes good financial sense, but it's important to understand the basics to make sure you obtain the best rates and terms. Learn how with these home refinancing tips designed specifically for today's difficult economy:

Home Refinancing Tips

  • Keep good credit. Although it is possible to get home refinancing with less than perfect credit, a good credit score is helpful to obtain the best rates. Obtain a copy of your credit score three to six months in advance to have plenty of time to review it for errors prior to actually applying for refinancing.
  • Shop for rates. Compare the total cost of home refinancing including interest rate, closing costs and other fees to find the best deal. It's also a good idea to sign up for an email alert to be notified when rates reflect your target interest level then Lock-in a rate as soon as possible. Remember, rates can change rapidly so be prepared to act quickly. Work with a broker or online quote agency to locate the best rates for your area.
  • Keep your home in good repair. In order to refinance the bank will perform a current appraisal as well as inspection and/or survey; depending upon how recently the home was purchased one or all of the above will be necessary. Make sure your home looks its best in order to appraise at a high enough value to reflect equity in the home. This is especially important for homes located in markets which have experienced dramatic drops in the market value of homes over the past 18 months. By keeping your home in good repair and performing regular maintenance it will be more likely to show a strong appraisal value.
  • Compare the total cost of home refinancing. When comparison shopping for home loan rates it is important to compare the interest and additional fees including closing costs, appraisals and other related expenses. Points that you pay in order to reduce the interest rate can also add thousands to the final cost. Many seemingly low interest rates actually require the homeowner to purchase points in order to obtain that favorable interest rate. In some cases, what appears to be a higher initial rate may actually cost less in the long run if you don't need to purchase points. Take time to closely compare both the long term interest rate and APR or annual percentage rate.

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When to Refinance Your Home Mortgage

For many people, the ability to refinance your home may reduce monthly expenses and actually improve credit all at once. Contrary to what you might think, refinancing is still a viable option for many homeowners. Determine if it's a good idea to refinance your home with this quick quiz:

Should You Consider Mortgage Home Refinance?

  1. Are the current mortgage interest rates at least 1 point less than your existing mortgage interest? If so, refinancing your home mortgage might make sense. If interest rates are lower now by 2 points or more than when you bought your home, you should definitely look into refinancing.
  2. Do you currently have an adjustable rate mortgage, negative amortization or interest only loan that is due to reset or which isn't building equity? If so, today's historically low mortgage interest rates make it a great time to refinance a home loan and lock in low rates on a standard mortgage refinance loan with a fixed interest rate.
  3. Do you have at least 20 percent or more equity in your home? If so, you might benefit from refinancing by reducing or eliminating the Private Mortgage Insurance (PMI) that you are paying each month. PMI is a type of insurance that is required in many loans where the buyer didn't make a down payment. of 20% or more. In exchange for less money down, PMI provides additional insurance to lenders in the event of a default. But if you now owe 80% or less on your mortgage, you may be able to drop the PMI and that can reduce monthly payments by $70 to $150 or more.
  1. Is your debt to income ratio nearing the maximum? If you refinance your home, you may actually improve your credit score by freeing up additional income and lowering the minimum monthly payment amounts of your basic bills. By keeping a solid credit score and low debt to income ratio, you will often qualify for lower interest rates on everything from credit cards to insurance… making this a strong strategic move toward lowering all of your bills at one time.
  2. Do you need to pay for a large one-time out of pocket expense like major medical bills or college tuition? If so, it is often more affordable to take out money when you refinance your home rather than securing additional loans. Just keep in mind, you could be refinancing for up to 30 years so the total cost may be substantially more in the long run. Take time to calculate the cost versus savings for yourself before making a final decision.If you answered "yes" to any of the above questions then you might benefit from speaking to a mortgage broker or lender to refinance your home. It could easily save hundreds of dollars per month. Be sure to consider the refinance closing costs and any other refinance fees in your decision. If refinance costs are nearly equal to what you would save by refinancing, then it may not be worth the trouble.

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What the Mortgage Relief Act Means For Families in California

The mortgage relief act that has been passed in the state of California is giving a lot of families that have lost their jobs and their homes due to the economic crisis, something to be happy about. Before this act was implemented, if an individual owed a debt to someone and they had this debt canceled or forgiven, the amount of debt that was canceled could be considered taxable income.
By forgiven, this means let's say that a creditor or lender decided to let you settle a past due debt for five hundred dollars less than what you owed. The amount of money that you did not pay, would be considered taxable income, thus meaning you would responsible for paying taxes on that amount of money.
The mortgage relief act was first introduced to the public in 2007. California, which has seen an immense amount of poverty since the outbreak of the economic recession has decided to extend the time frame for this act.
This means, that the act will remain in play until the year 2012. According to this act, up to two million dollars of debts around the world will be forgiven for families, one million will be forgiven if you are married filing separately.
Before this act was implemented, residents that resided in California were forced to pay taxes on any deficit account that was acquired during the processing of a foreclosure, loan modifications or a short sale. Individuals were required to report their canceled amounts on their tax forms and they had to render payment for the forgiven amounts thereafter.
The state of California is allowing anywhere between $250,000 to $500,000 to be eliminated. This means, individuals will not be responsible to file these amounts as earned income, therefore their tax amounts when filing after a home has been foreclosed on and some of the debts have been forgiven are not going to burden them in the least.

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What is involved in refinancing your home

Before you jump in head first, you should know what is involved in refinancing your home. A home refinance is just about the same as getting the original mortgage. Basically what you are doing is paying off your current loan with a new loan. The reason you do this is to get better terms, whether it be a lower interest rate or a longer term for your loan payment. You want to educate yourself so that you know everything that is involved in refinancing your home.

As I said, a refinance is just like an original mortgage, you will need to fill out an application, verify your income, go through a credit check, house appraisal and more. So why do people go through this again? It depends on the terms of your current mortgage. Most people consider refinancing if interest rates drop 2% or more below what you currently have. Also if your credit has improved, you may stand a chance to get better terms on your mortgage.

But you can't just jump into refinancing with out considering everything that is involved. Just like with an original mortgage there are closing costs. It usually doesn't make sense to refinance if your closing costs are more than the amount of money you would save through refinancing. Some lenders advertise no cost loans. But be aware that the costs are usually incorporated into the loan amount. This means that the loan will be a little higher to add in all of those fees, and this may make your monthly payment higher. Sometimes if you have the money up front it's best to pay and keep a lower principal amount or interest rate.

When you are considering refinancing, you should lay out all of your options and carefully consider which one is best for you and your financial situation. You may also need to enlist the help of other professionals such as a tax preparer or lawyer. For instance if you lower your interest rate you'll have less interest to deduct on your taxes and this may cause you a problem. Perhaps it's better for you to have high closing costs so that you can to deduct those costs during the current tax year. You should not take refinancing lightly because there are so many things involved in refinancing your home that could benefit or harm you.

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